Leslie Hume:
Well, hello, and welcome to Everstream’s live semiconductor shortage situation brief during this briefing, our experts based out of our Singapore office Yiting Huang and Josiah Ponnedurai will examine the supply chain events impacting the semiconductor industry in 2022 and offer guidance on what you can do to manage the rising chip prices and prolong shortages through the second half of 2022. And so with that, it’s my pleasure to turn it over to Josiah to begin the brief.
Josiah Ponnedurai:
Thanks, Leslie. Um, so a very good morning to everyone. I’ll start off by providing a brief snapshot of the current states of the semiconductor industry before handing the flow over to ye who will brief us about the biggest threats to semiconductor output, as well as provide some recommendations for what your company should be doing to see the current shortage through the rest of the year. So firstly, if we could take a step back to look at the most recent market trends in the semiconductor industry, we see that average lead times across all different types of chips appears to be holding steady at about 27 weeks. Um, this being the figure for both April and June with lead time for chips in may coming in slightly higher at around 27.1 weeks. Now, what this suggests is that average chip wait times have reached somewhat of an equilibrium and we expect this to actually hold barring a big shock to the market or to chip manufacturing capacity.
Now bear in mind that lead times four chips do continue to vary based on the kinds of chips being ordered. And we are seeing some lead times for the more advanced chips like those used in networking, optical, electronics, and telecommunications, those lead times we’re seeing go up to 52 weeks in some cases. So now in addition to more stable lead times, we’re also beginning to see some signs of weakening chip demand as slowing global growth begins to weigh on consumer purchases. So major semiconductor manufacturers, including Samsung, micron and Intel have all actually issued lower than expected forecasts for the second half of the year. Now revenue growth for the industry as a whole actually dropped by around 0.03% in the second quarter of 2022. Now this doesn’t actually sound like much, but it actually ended five straight quarters of continual growth in demand and revenue for industry since the pandemic began.
So one big takeaway that we can draw from all of this data is that the semiconductor supply is still very much being influenced by the kinds of chips being manufactured as well as the market demand for these chips. So this takeaway is more clearly illustrated. If we take a closer look at the automotive and consumer electronics industries. So taking a quick look at the auto industry, we are seeing that the chip shortage continues to cause multiple production disruptions in this sector. So as a matter of fact, we hear at Everstream have been tracking more than a hundred semiconductor related production disruptions involving car makers and their suppliers that occurred during the first half of the year. Um, in fact, we’ve seen major players like Toyota, GM Mazda and Volkswagen, all reporting chip related production stoppages just over the last two months. So one of the reasons the auto industry has actually struggled to address ongoing chip shortages is firstly due to obvious fabrication capacity constraints.
Um, but another reason is actually the tendency of automotive companies to actually overorder on chips in order to boost stock levels. Um, and this is, you know, and they’ve been doing this despite the ongoing slump in commercial vehicle demand. Um, additionally, we also predict that the auto industry will likely continue to be heavily impacted by chip shortages. As semiconductor manufacturers are more likely to dedicate a greater proportion of future fabrication capacity to producing chip more advanced chips with higher profit margins. So like those kinds of chips used in more advanced electronics, for example. So pivoting quickly to the consumer electronics industry, we see that the shortage has also bottlenecked the output of major consumer electronics companies like apple. However, in contrast to the automotive industry, we actually expect the shortage for this industry to improve as rising inflation and slowing global growth, decreased demand for consumer electronics like mobile phones, gaming consoles, TVs, et cetera.
So, this explains why we’re actually seeing a coming glut in the supply of certain chips that are commonly used in consumer electronics. So, think like Ram memory chips that I’ve found in nearly every computer, the contract prices for those chips have actually fallen by nearly 10.6% from April to June, as consumers begin to scale back on computer spending another good example of a chip type that will be oversupply our graphic processing units, which are commonly used for crypto currency mining. And so obviously the demand for these chips have fallen with the recent downward trend in the crypto market. So now that everyone has an idea of the current state of the industry, I’ll be turning it over to heating. Who’ll be walking us through the different kinds of disruptions we expect manufacturers to face hitting into the rest of the year over to your eating.
Joshua Ponnedurai:
So, actually, yeah, so we we’ll continue to talk about actually several major disruptions in the current semiconductor market. So firstly, we pivot over to China. China is actually the third largest way wafer supply in the world. And in late 2021 it’s we’ve output actually accounted for around 16% of global capacity. Um, however Beijing’s ongoing zero COVID strategy has actually, you know, thrown a spanner in the works of a lot of semiconductor manufacturers. So the latest flare up involving the highly transmissible BA five <inaudible> variant for example, has actually hit multiple high tech hubs, including Shanghai and <inaudible> and all these COVID outbreaks obviously could disrupt China’s recovery from the massive Shanghai lockdown that occurred earlier this year, which actually ended up decreasing national chip output by around 10.4% from their previous year.
So, besides China’s COVID 19 lockdowns, we obviously are also, you know, forecasting the current geopolitical potential will continue to add to the instability surrounding China’s semiconductor manufacturing market. So last week the us government actually announced that it was considering new export controls on chip making machinery to China’s largest. Uh chipmaker SM I C. Um, and so obviously this is being done to you know, pressure China’s chip making industry in order to give the us a competitive edge. And the white house is also pressuring the Dutch chip equipment manufacturing company, ASML to ban the sale of older lithography systems to Chinese manufacturers. Um, yeah, so the, the systems are generation behind the most cutting-edge technology, but you know, these older systems from ASML are actually very commonly used to make less advanced chips for the automotive robotics equipment and consumer electronics industries.
So, although these, you know, potential export restrictions have not materialized, it obviously signals, you know, the great geopolitical risks in the market given that the us and China are such big players in the semiconductor manufacturing industry. So, on top of disruptions in China, we are also seeing the growth of global semiconductor output facing potential stagnation as major suppliers try to ramp up their output by building new facilities. However, we see that these facilities will actually only be coming online sometime within the next two to three years. And one of the big reasons for this is a shortage of chips used to make the actual machinery that semiconductor manufacturers use themselves. So TSMC, the world’s largest chip producer, has actually warned that its new data centers could actually be delayed until 2024, precisely due to a lack of semiconductor manufacturing equipment.
Um, lastly, we also see another big risk in delayed chip funding. Um, as we all know in June of this year, the us Senate passed legislation called the innovation and comp competition act also known as the chips act and this actually granted 52 billion of subsidies to the domestic semiconductor industry to develop and build foundries. However, one thing we are seeing is obviously that this act has actually been delayed. Um, and this has, you know, due to ongoing domestic, you know, political, like domestic political priorities and things like that. It’s actually pushed back a lot of the urgency that lawmakers initially that motivated the initial push among lawmakers to get the act introduced. So, what we are seeing is that if the act is potentially delayed, we could see, you know, further downstream delays to Intel’s plants in Ohio and TSMC’s future chip factory that they’re planning in Arizona.
So, moving on quickly to our recommendations. So given, you know, the current situation we recommend that companies first, especially companies importing semiconductors from China should first create more visibility into their sub tier supply chains to be more aware of the latest disruptions, especially because China is now not only such a huge player in the semiconductor fabrication market, but also in the raw material market to supply things like Silicon to semiconductor manufacturers. Um, and secondly, we also advise companies to develop dual sourcing practices to mitigate the risks deriving from the current unstable geopolitical landscape. So, although, you know, taking time to develop dual sourcing, you know, to, to find other suppliers may take up to 12 to 18 months it is actually beneficial in the long term, you know, given how unstable the current market is. Um, and so with that, that’s all Yiting and I had planned to say, and we’ll pass it back to Leslie.
Lesley Hume:
Wonderful. Well thank you so much. Uh, and I’m so sorry that Yiting didn’t get, didn’t get to present her research directly. Um, but certainly we’ll, we’ll fix that for the next time.